Sunday, November 24, 2013

there were two somewhat important economic reports for October released this week, coincidentally both rescheduled for release at 8:30 AM on Wednesday, retail sales from the commerce department and the consumer price index from the bureau of labor statistics (BLS)....together they're often used by economists to generate a metric that goes by 'real retail sales', which is supposed to be something analogous to the real personal consumption expenditures metric of GDP, and which is said to be an indicator used by the NBER Business Cycle Dating Committee to determine turning points in the economy, ie, the beginning and end points of official recessions...even the Fed generates a graph for real retail sales from these two reports, constructed by a simple deflation the monthly retail sales results with the change in the consumer price index of the same month...the last time we covered these two reports together we suggested that this metric was an inexact and crude measurement that was prone to leading to incorrect conclusions about the direction of the economy, especially in the way it's viewed by the Fed, NBER (National Bureau of Economic Research) and most economists...today we're going to show why it's wrong, and moreover, point to the correct way real retail sales should be calculated...but before we do that, we'll take a look at the two reports in question...

according to the Advance October Report on Retail and Food Service Sales (pdf) from the Census Bureau, seasonally adjusted retail and food services sales were at $428.1 billion in October, an increase of 0.4 percent (±0.5%)* from September and 3.9 percent (±0.7%) above October 2012...unadjusted retail sales, extrapolated from a small sampling, were reported at $421,946 million, an increase over the revised September sales of $402,927... that asterisk points us to a footnote that tells us Census doesn't not yet have sufficient statistical evidence to determine whether seasonally adjusted sales actually rose in October of not, but that they're 90% certain the September to October change was between a decrease of 0.1% and an increase of 0.9%; with that caveat, we'll look at these widely followed advance estimates as reported...

it's also clear from looking at that first column above that most kinds of business, except for building and garden supplies and gas stations, saw seasonally adjusted sales rise, led by a 1.6% month over month increase in the sporting goods, hobby, book & music store group, who saw seasonally adjusted sales rise to $7,714 million for the month...clothing stores rebounded to show a 1.4% month over month increase while selling $37,847 million of clothing and shoes, and electronics and appliance stores also saw October sales rise by 1.4% to $8,699 million, while furniture stores logged a one month sales increase of 1.0% to $8,687 million, as did restaurants and bars, whose October sales were at a seasonally adjusted $46,317 million...also showing month over month sales gains were drug stores (health and personal care) at 0.5%, where $24,327 million of products were sold in October, non-store or online retailers, who moved $37,847 million of merchandise, 0.4% more than September, and general merchandise stores, where sales of $55,303 million were up 0.2% for the month..meanwhile, food and beverage store sales were virtually unchanged, with seasonally adjusted sales rising to $54,693 million in October, from $54,682 million in September, gas station sales fell 0.6% to $45,165 million as gasoline prices fell 2.9%, and sales at building material & garden equipment stores fell 1.9% to $25,793 million...also note that miscellaneous retailers, where sales fell 0.1%, account for another $10,609 million sales for the month…

also note the third and fourth columns on the table above, which represent the 2nd estimate of retail sales for September...as originally reported, retail sales were down 0.1% to $425.9 billion in September; that estimate has now been revised to a preliminary figure of $426.369 billion, and that works out to a 0.0% change from the seasonally adjusted sales of $426.355 billion in August...the major revision to September sales was in in motor vehicles and parts sales, which were originally reported at $79,773, down 2.2% from August; that's been revised to show September motor vehicle and parts sales at $80,815 million, down just 1.2% from August....other retail sales groups which saw sales revisions of more than 0.2% included clothing stores, which were originally reported to have seen September sales fall 0.5%, which has now been revised to a 0.9% drop; the sporting goods, hobby, book & music store group, originally reported to have seen just a 0.5% change who've now seen their September totals rewritten to indicate a 1.3% sales gain; general merchandise stores, initially reported as up 0.4% which has been revised to just a 0.1% increase; and restaurants and bars, where September sales were reported up 0.9% three weeks ago, which has now been revised to just a 0.2% gain from August...on net, this revision suggests a small upward revision to the durable goods component of PCE in 3rd quarter GDP, partially offset by an even smaller downward revision to non-durable goods…

our FRED bar graph below shows the monthly percentage sales change for each of the 12 major retail sales categories since last October....the monthly data for each of the past 13 months is represented by a grouping of 12 bars, with each type of retail sales represented by its own color code in each group, wherein an increase in sales appears above the ‘0’ line and a decrease below it…from left to right in each group is a dark blue bar representing the percentage change in motor vehicles and parts sales, a red bar indicating the change at general merchandise stores, followed by the percentage change at food and beverage stores in green, the sales change restaurants and bars in mauve, the change at gas stations in orange, the change non-store or online retailers in sky blue, the change at building and garden supply stores in light green, the percentage change at drug stores in mustard, the change in sales at clothing stores in in pink , the change at electronics and appliance stores in purple, the change at furniture stores in yellow, and the percentage change in sales at stores specializing in sporting goods, books or music in pale blue…(click to enlarge)

also seeing a delayed release on Wednesday, the Consumer Price Index for October from the Bureau of Labor Statistics was one of the economic reports most profoundly effected by the government shutdown because its input data is normally collected by an army of field agents who visit thousands of retail stores, service establishments, rental units, and doctors' offices, et al each month to track changes in price in the items appearing in the index...to compensate for the loss of 16 days of such data collection, BLS personnel normally devoted to in-office maintenance work were redirected into field data collection and index production, and as a result BLS managed to collect roughly 75 percent of the amount of prices normally used in constructing the CPI, albeit only during the last two weeks of the month, absent prices from the prior days...understanding that this may make the results less reliable, we'll go with what's reported, since considering the methodology there wont be any revision anyhow...

other than 2.9% lower prices for gasoline, items in the energy price index which fell in price in October included fuel oil, which was down 0.6%, the index for propane, kerosene and firewood, which slipped 0.4%, and other motor fuels, which also were 0.4% lower; the energy services index was off 0.2%, as a 1.0% decrease in the price of natural gas was partial offset by a 0.1% increase in the cost of electricity...on a year over year basis, the energy price index has fallen 4.8%, as the 9.5% decrease in energy commodities outweighed the 3.3% increase in energy services...

both of the major components of the food price index, food at home and food away from home, were up 0.1% in October, as was the overall food index; among categories of food at home, prices for cereals and baked goods fell 0.4% for the month, as bread prices fell 3.0%, flour prices fell 0.9%, and the rice pasta and cornmeal index rose 2.2%, while dairy products were 0.2% lower as a 1.3% drop in cheese prices and a 1.4% drop in ice cream prices offset an 0.3% increase in milk prices...meanwhile, prices for meats, poultry, fish, and eggs rose 0.6% on a 1.0% increase in pork prices, 1.5% higher prices for fish and other seafood, and 1.8% higher egg prices, while fruit and vegetable prices were 0.2% higher as lettuce prices rose 4.0%, citrus fruits rose 1.9%, fresh fruits other than apples, bananas and citrus rose 3.2%, while prices for processed fruits and vegetables fell 1.2%; in the beverage group, which saw prices rise 0.4% in October, roast coffee prices increased 0.7% and carbonated drinks fell 0.1%, while the catch all category of other food at home saw a 0.2% price decline, as sugars and sweets rose 0.4%, snacks rose 0.5%, while both butter and margarine and spices and seasoning prices fell 1.1%...in the food away from home grouping, fast food prices rose 0.2%, full service restaurant prices were unchanged, and food at work and school cost on average 0.8% more than it did in September...

among core prices that increased in October, the cost of shelter rose 0.1%, as rents for one's primary residence rose 0.2%, homeowners equivalent rent rose 0.2% while room prices at hotels and motels fell 4.0%; the cost of apparel fell 0.5%, as men's and boys clothing rose 0.8% as prices for pants and shorts were up 10.2%, women's and girls' apparel fell by 0.8% on 2.2% lower prices for girls clothing, while the prices for footwear fell 0.6%...the overall transportation index, which includes fuel costs, showed a 0.7% decline, but prices for transportation commodities less fuel were unchanged, as prices for new cars and trucks fell 0.2% while prices for used cars and trucks rose 0.3% and parts and accessory prices fell 0.1%...meanwhile, prices for transportation services rose 0.7% in October as public transportation costs rose 2.2% on a 3.6% spike in airline fares...the medical care index showed no change for the month as medical commodities were up 0.3% in price on a 0.6% increase in nonprescription drugs prices while costs for medical care services were off 0.1% on 0.2% lower hospital and related services; in addition, the recreation index rose 0.1% as prices for recreation commodities were unchanged overall as prices for video & audio equipment fell 0.4%, offsetting increases of 0.4% in prices for sporting goods and pets and pet supplies, while recreation services prices increased 0.2% on a 0.4% increase in cable and satellite service and a 05% increase in veterinary and other pet services..the last major price index, for education and communication, showed a 0.2% increase in October as education costs were up 0.4% and communication prices were unchanged; within education and communication commodities, which were down 0.4%, textbook prices were up 1.0% and personal computers fell 1.3% in prices, while education and communication services rose 0.3% for the month as college tuitions were up 0.4% and telephone services rose 0.2%...

our FRED graph below shows the relative price change in each of these major components of the CPI-U since January 2000, with all the indexes reset to 100 as of that date to make for an apples to apples comparison, as two of the composites were restructured in 1997 and the rest were based on 1982-4 prices…in blue, we have the track of the change in the price index for food and beverages, which tracks pretty close to the track of the CPI-U, which is shown in black; in red, we have the change in the price index for housing, which includes rent and equivalents, utilities, repairs and other homeowners costs like insurance and which at 41% of the CPI also tracks close to the CPI… in violet, we have the price index for apparel, which has been the only index to show a net price decline over the decade…the transportation index, in brown, shows the impact of volatile gas prices on the cost of transportation, while the price index for medical care in orange has obviously risen the most over the entire period…in addition, education and communication prices are tracked in dark green, and the track of the recreation price index is shown in light green..

We Find Real Retail Sales Rose .75% in October

now, as we mentioned in opening, an economic metric called "real retail sales" is commonly constructed by using the CPI to adjust retail sales for the same month...the reasoning behind this is that we'd want to know how many units of product were sold, not just the dollar value, and if prices were rising (or falling), the retail sales figures, which do not adjust for price changes, we'd get a skewed result...for instance, if the retail sales report told us the dollar sales of apples were up 5% month over month, the actual change in the number of apples sold couldn't be determined unless we knew if prices for apples changed or not, and by how much...and the reason we would want to know real retail sales early is because real personal consumption expenditures (adjusted for inflation) constitute 70% of GDP, and although that is mostly spending for services, spending for durable goods like cars and appliances, and non-durable goods, like food, clothing and gasoline, still make up a third of expenditures, or over 23% of GDP...in the common method of computing real retail sales for October, the increase in dollar value retail sales of 0.4% is adjusted for prices that were 0.1% lower, suggesting that real retail sales had increased by 0.5% for the month (or 0.47%, using two decimal places)...but as we've seen in reviewing these two reports together, the expenditures they cover don't really match up; in fact, more than 60% of price changes covered by the CPI are for services, not products sold at retail at all....so, if we use the CPI to adjust retail sales for inflation, there's a good chance there will be months where the price change in many of the items sold at retail would go in a different direction than the majority of the CPI components...to put it another way, by adjusting retail sales with the CPI, we'd often end up adjusting sales of cars, clothing, and appliances with the price changes of doctor's visits, apartment rents, airfares, and tuition increases...the only correct way to adjust retail sales with the CPI would be to itemize retail sales and adjust it with the corresponding CPI component price change...we'll run through an example of how that could be done here using our October data, but as you'll see it's a very tedious process better left to a computer program...

the largest component of retail sales is sales at motor vehicle & parts dealers, which at a seasonally adjusted $81,871 million in October accounted for 19.1% of total retail sales; of that, $75,035 million was from vehicle sales, and the rest was sales at parts and tire stores....and as we saw, sales at car dealers increased 1.4% in October...we have two components of the CPI which are suitable to adjust the vehicle sales for inflation; prices for new cars and trucks, which were down 0.2% and prices for used cars and trucks, which were up 0.3%; the weighting of new vehicles in the CPI was 3.133, and the weighting of used vehicles was 1.889, which means that new vehicles were five-eighths of sales, and used vehicles accounted for three-eighths; so we want to adjust 5/8ths of the 1.4% increase up by 0.2%, and 3/8ths of it down by 0.3%, which quite coincidentally gives us a real vehicle sales increase of just over 1.4%, not much change....also buried in that aggregate motor vehicle data are sales of parts and tires, which were up 0.48% in October, while the corresponding prices for motor vehicle parts and equipment were down 0.1%, resulting in a real sales increase of .58%...so in a quick and dirty calculation, we have real retail sales for the motor vehicle & parts dealers component up 1.346% for October...moving on, another large component of retail sales is sales at food and beverage stores, which accounted for 12.8% of retail sales and saw dollar value sales virtually unchanged in October...applying the 0.1% increase in the 'food at home' index of the CPI to those sales, we thus find that real retail sales at food and beverage stores fell 0.1% in October...there were also $46,317 million in sales at restaurants and bars in October, or 10.8% of retail sales; those sales increased 1.0% month over month, and we'd deflate them with "food away from home" from the CPI, which indicated a 0.1% MoM price increase; thus real retail sales at bars and restaurants increased 0.9% in October...$45,165 million in sales at gasoline stations were down 0.6% according to the retail sales report, where they accounted for 10.6% of sales; however, the gasoline component of the CPI tells us that gasoline prices were down 2.9%, so real sales at gasoline stations were up around 2.3%...sales at furniture stores, at just over 2% of retail sales, were up 1.0%, which was not broken down into types by the retail sales report, whereas there are prices for a dozen separate items that might be found at a furniture store on the detailed CPI list...so to adjust furniture sales for inflation, we'd use the overall 'household furnishings and supplies' component, which includes several non-furniture items but is still mostly furniture with appropriate weightings; prices for that index were down 0.2%, so we'd conclude that real furniture sales were up 1.2% in October...sales of $55,303 at general merchandise stores, which were up 0.2% and account for 12.9% of retail sales, presents another problem, in that these stores sell a wide range of merchandise for which there's probably over a hundred CPI entries...we'll adjust those sales with the price change for consumer "commodities less food and energy commodities", which includes all retail items except food and energy, and which was down 0.1% for October, and thus results in a real sale increase of 0.3% at general merchandise stores...the $8,699 million of sales at electronic and appliance stores were not broken down in October, but in prior months appliances, TV & camera stores accounted for about 3/4ths of those sales and computers and software stores were the rest; together they accounted for just over 2.0% of retail sales and increased 1.4% in nominal terms...in the CPI index, appliances, unchanged in price, are a household item, TVs, down 0.6% and cameras, down 0.1% are entertainment, while personal computers, down 1.3%, are educational; using the CPI weightings of each, we figure a 1.6% real sales increase in TV and appliances sales, and a 2.7% real sales increase in PCs and related equipment, giving us a 1.9% increase in real unit sales for the retail group...computing the other retail businesses in a similar manner, we find that real salesat clothing stores, which account for over 4.9% of retail sales, were up 1.9% in October; while real sales at drug stores, which account for 5.7% of sales, were up 0.4% based on weighted price indexes of personal care products and drugs...real sales at sporting goods, hobby, book and music stores, which account for 1.7% of retail, are up 1.6%, same as the actual increase, when adjusted with the unchanged recreational commodity index, and real sales for non-store retailers, which account for 8.8% of retail and adjusted as general merchandise, were up 0.5% in October...we also find that real sales at building and garden supply stores, which at $25,793 million account for 6.0% of retail sales, when adjusted with prices for tools, hardware, outdoor equipment and supplies, were down 2.0% in October and that miscellaneous store retailers, at 2.5% of the total, saw no change in real retail sales...

now that we've done this exercise of computing the real retail sales percentage change of each business group covered by the retail sales report, we have to add them together to come up with a final figure for real retail sales, so we'll express that math in a detailed longhand expression so we all can see what we're doing...real retail sales for October = 19.1% * 1.346% + 12.8% * -0.1% + 10.8% * .9% + 10.6% * 2.3% + 2% * 1.2% + 12.9% * .3% + 2.0% * 1.9% + 4.9% * 1.9% + 5.7% * .4% + 1.7% * 1.6% + 8.8% * .5% + 6.0% * -2.0% + 2.5% * 0% = + .75%, assuming we've done the math right...so our calculation of real retail sales is apparently nearly 0.3% higher than the simplistic method of just deflating total sales with the CPI...one obvious reason that would account for much of the difference was the gas station component, which would have been carried as down 0.5% when deflated with CPI-U, but is apparently up 2.3% when deflated with gasoline prices...perhaps some combination of gasoline and tires, batteries and accessories would have been a more appropriate deflator, but we have no data on which to base that percentage...another reason that this workout produces a higher real retail sale result is more valid; that being that prices for items bought at retail (aka commodities in CPI jargon) have been trending down in price while prices for services have generally been up; that's clear just from reviewing some of what we saw in this month's CPI core data; it makes no sense to deflate car sales (transport commodity) with the 3.6% spike in airfares (transport service)...but that's the kind of thing actually being done when the NBER, the Fed and other economists deflate retail sales using the entire CPI...

Job Openings and Hiring at 5 Year Highs

there were also two more employment reports released on Friday, both at 10 AM, as the Bureau of Labor Statistics is quickly catching up on its shutdown delayed backlog...the Job Openings and Labor Turnover Summary for September, which includes estimates of the number and rate of job openings, hires, and separations by industry and by geographic region, uses the phrase "little changed" in describing the month over month change in the first five metrics mentioned in the opening summary, in recognition of the fact that what changes did occur fall within the margin of error in this report, as they only survey 16,400 establishments to create this report, in contrast with the 145,000 businesses and government agencies surveyed for the Current Employment Statistics, aka the establishment survey...what they actually reported is that that the seasonally adjusted number of job openings rose by 69,000, from 3,844,000 in August to 3,913,000 in September, the highest level since before the recession, with 32,000 new openings in retail trade while manufacturing job openings, primarily in the durable goods area, fell by 16,000...the unadjusted number of job openings was a bit higher at 3,950,000, with 531,000 of those in retail, up from the 455,000 retail job openings in August...the seasonally adjusted number of workers hired (or rehired) in September also hit a new 5 year high, at 4,585,000, up 26,000 from the 4,559,000 hired in August...the biggest jump in hiring came in the professional and business services sector, where 1,012,000 were hired, 33,000 more than were hired in August...total separations were up as well, by 21,000 to 4,426,000 in September, as the leisure and hospitality sector saw 51,000 more employees fired, laid off, quit or otherwise discharged than were in August...the difference between those hired and those separated in September was thus 159,000, which is pretty close to the 163,000 payroll jobs gained in September indicated by the most recent establishment survey revision...this JOLTS survey had been showing roughly 20,000 less net new jobs per month than indicated by the Current Employment Statistics throughout this year…

monthly job separations are further divided into those who quit, those who were fired or laid off or otherwise let go, and 'other' separations, which includes retirement and employee deaths; in seasonally adjusted data, 2,342,000 workers reportedly quit their jobs in September, down a bit from the 2,364,000 who quit in August, another 1,727,000 were laid off or otherwise discharged by their employer, an increase from August's 1,676,000 discharges, and other separations numbered 303,000...the unadjusted data shows 2,567,000 worker quits, with nearly a million of those who had worked in retail or food service quitting their jobs, and 1,848,000 layoffs or discharges, with the largest number of those, 431,000, coming from professional and business services...our FRED bar graph above shows the monthly change in each of the major metrics from this series over the past two years…each grouping of five bars represents the changes that occurred in one month, with increases above the ‘0’ line and decreases below it…the blue bars indicate the change in the number of job openings each month, while the orange bars represent the change in the number hired for the month; in addition, the red bars indicate the change in layoffs and discharges, the green bars indicate the change in the number of those who quit each month, and each violet bar shows the monthly change in the total number of separations…you might notice that increases in overall job turnover have slowed somewhat from last year, and in fact, from the years before it, which you can view if you click on the FRED graph for a larger view and change the “Observation Date Range” for “All Bar Series”…

Regional and State Job Creation and Unemployment Rates Show Little Improvement

the other jobs report released by the BLS on Friday was the Regional and State Employment and Unemployment Summary for October, and like the US employment summary usually released on the first Friday of each month, this report is actually two reports, one which reports new payroll job creation as reported by businesses and agencies, and the other on the status of employment or lack of it as reported by households, combined with state data and estimates...so basically what this report does is takes the data from the October jobs report which we covered two weeks ago and breaks both job creation and household employment statistics down by region and by state...so like that report, data collection was delayed by the shutdown, and there was a similar divergence in reporting methods between the two surveys, wherein furloughed government employees were still considered employed by the establishment survey, while they were supposed to be marked as unemployed on temporary layoff in the household survey...

seasonally adjusted state data from establishments showed the states with the largest seasonally adjusted increases in payroll jobs were Florida with 44,600, including 11,300 in professional and business services and 11,000 in leisure and hospitality, California with 39,800, including 12,200 government jobs, and North Carolina with 22,200, including 7,600 in education and health, while Kentucky lost 12,600 jobs and Washington's payroll employment was reduced by 8,100...the largest percentage job increase occurred in Wyoming, which saw payroll jobs rise by 1.0%, while Delaware, Florida, and Nevada all saw job increases of 0.6%...percentage-wise, the largest month over month decrease in employment occurred in Kentucky at 0.7%, followed by South Dakota at 0.6% and Washington at 0.3%...the map below, taken from page 23 of the full pdf of this report, shows the year over year percentage change in payroll employment in each state, from greater than 3.1% in white to a decrease in employment in black…

from the seasonally adjusted state labor force and unemployment data, we find that Nevada has the highest state unemployment rate at 9.3%, followed by Rhode Island with 9.2% and Michigan with 9.0%, while North Dakota continues to have the lowest jobless rate at 2.7%...only the District of Columbia saw its unemployment rate rise measurably, as it increased from 8.6% to 8.9%, whixh was more than likely mostly shutdown related...meanwhile Missouri saw it's unemployment rate fall 0.4%, from 6.9% in September to 6.5% in October, as did South Carolina, where the unemployment rate fell from 7.9% to 7.5%...meanwhile, the unemployment rate for North Carolina fell 0.3%, from 8.3% to 8.0% , and five states saw their jobless rate fall by 0.2%: Nebraska, where the rate went from 4.1% to 3.9%, Minnesota, where the rate fell from 5.0% to 4.8%, Maine, where the jubless rate 6.7% was down from 6.9% in September, Delaware, where unemployment fell from 7.0% to 6.8%, and Georgia, where the September jobless rate of 8.3% gave way to the 8.1% rate in October...the map below, also taken from the full pdf report, indicates the unemployment rate in each of the 50 states by darkness of its shading, from those with an unemployment rate below 5.4% in white to those with an unemployment rate between 8.5% and 9.9% with the densest cross hatching..

Manipulation of Employment Data is Possible but Not Easy

and since we've been talking unemployment rates, there was a story in the NY Post this week wherein a Census Bureau employee claimed to have falsified survey data for the monthly unemployment report during the run-up to to the 2012 election, which resulted in a precipitous decline in the September unemployment rate from 8.1% to 7.8%, and thereby helped Obama win the election...it shouldn't be much of a surprise that this was picked up by the right wing media, including the likes of Rush Limbaugh, so since the allegation that an employment report was manipulated, and is still being manipulated, is in the news, maybe we should look at how feasible that would be...

recall that the unemployment rate comes from a survey 60,000 households representing the employment status of 110,000 individuals per month...these surveys are conducted by the Census bureau for the labor department, and the BLS tells us that roughly 2,200 census employees from district offices interview those chosen to participate (based on a regional & demographic mix) first at their home, then three times later by phone before they are dropped out of the survey for a year...so that means the average Census employee is responsible for 50 responses to the survey each month...since there are more employed than unemployed, the opportunity for one employee to switch unemployed to employed is minimal; ie, with the labor force participation rate less than 65%, the average mix of those in the caseload for one census employee would include 29 employed, 3 unemployed, and 18 not in the labor force...thus, with each answer to the survey translating into a little over 22,000 in the final totals (based on a working age population around 245 million), it's unlikely one rouge employee could reduce the number of unemployed in the final tally by more than 70,000...so with a margin of error of +/- 300,000 in the monthly change in the number unemployed and +/- 0.2% in the employment rate already assume for this survey, it would take at least 5 census employees falsifying every unemployed person they interview to even swing a change larger than the margin of error...

part of the subsequent media discussion after this article revealed that Census offices in the New York and Philadelphia regions were having trouble meeting their quotas of 90% successful interviews, and that in Philadelphia in particular, they were alleged to have filled the gap with fake interviews...we can almost imagine a supervisor under pressure to meet a quota telling employees do whatever you have to, even make up data, to cover his backside, and that a supervisor made such a statement was part of the allegation...but if that’s the case, it didn't show up in the data; the unemployment rate in the Philadelphia region actually rose in September 2012…what we have to understand is that most census employees are career number crunchers; so we would not be surprised to find that some started work at the Census under Reagan or even earlier...so their politics is probably in a similar proportion to that of the general population...if it was known in the agency that some employees were fudging reports to make Obama look better, as was alleged, those opposed to him could much more easily switch employed to unemployed than vice-versa, simply because there are more employed in each caseload...

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

Sunday, November 17, 2013

the barrage of economic releases that we had seen over the previoustwo weeks finally slowed to a more measured pace this week, but the week did see the release of two September reports that weren't available to the BEA when they released the advance estimate of 3rd quarter GDP last week, so we'll have the opportunity to see how that GDP report might be revised with the inclusion of this new data...by far the most important of those releases was the September report on our International Trade in Goods and Services, which showed that our trade deficit rose 8.0% above August’s deficit to $41.8 billion in September, which was worse than the worst forecast of 72 economists surveyed by Bloomberg and considerably higher than the assumptions used by the BEA in computing GDP...in September, total imports of goods and services increased $2.7 billion to $230.7 billion as imports of goods increased $2.8 billion to $193.4 billion and imports of services decreased $0.1 billion to $37.3 billion, while total exports were $0.4 billion lower than August's at $188.9 billion, as exports of goods decreased $0.2 billion to $132.1 billion and exports of services decreased $0.2 billion to $56.8 billion, resulting in a September excess of imports over exports of $41.8 billion...our FRED bar graph below shows how the change in exports in blue and imports in red influence the change in the balance of trade, which is shown in brown; each group of three bars represents one month’s of trade data over the past two years, with positive changes above the ‘0’ line and negative changes below it; when exports (blue) increase in a given month, they add to the trade balance change in brown; conversely, when exports decrease, they subtract from the brown trade balance bar; the action of imports on the balance is just the reverse; when imports increase in a given month, they subtract from the brown trade balance for the month, but when imports decrease, the balance of trade rises as a result…

BEA Guesses Wrong on Goods Trade Deficit

as you may recall, last week we pointed out that the BEA only had two months of data from several data sets when estimating 3rd quarter GDP, and that in lieu of data, they made several assumptions which were included with the technical note accompanying the release; however, their data isn't directly comparable to this trade data, as all national accounts amounts from the BEA are expressed monthly at an annual rate, whereas this Census data is just monthly; so we'll express the difference in the two as a percentage change…the BEA assumed that exports of goods would increase 1.4% in September, when in fact they decreased by 0.15%; similarly, when figuring GDP, the BEA assumed that September imports of goods increased 1.3%, and as we've just seen, they actually increased 1.5%...so, in sum, BEA's assumption was that the seasonally adjusted trade deficit in goods would increase by less than 1% in September, whereas the goods deficit actually increased by $3.0 billion from August to $61.3 billion in September, a month over month increase of 4.9%...Robert Oak at the Economic Populist works out the change in GDP from there so we don't have to; he finds that the larger than expected September trade deficit will lower third quarter GDP by 0.3 percentage points...

Our Car and Oil Imports Rise as we Export less Gold and Fuel Oil in September

the end use categories of imports that saw major seasonally adjusted increases in September were industrial supplies and materials, which increased $901 million to $57,346 million, automotive vehicles, parts, and engines, which saw imports rise $887 million to $27,131 million, and capital goods, where our September imports of $47,100 million were $830 million more than August...among our imports of industrial supplies, crude oil imports increased $956 million to $23,741 million, natural gas imports increased $179 million, and imports of non-monetary gold decreased $304 million; among our imports of capital goods, imports of civilian aircraft rose $413 million, imports of computer accessories rose $346 million, imports of semiconductors rose $336 million, while imports of computers fell $250 million month over month; in addition, imports of consumer goods rose $624 million to $44,214 million as a $915 million increase in cell phones and a $342 million increase in pharmaceutical imports was partially offset by decreases of $177 million in cotton goods, $164 million in gem diamonds and $143 million in textiles not made of cotton or wool...meanwhile imports of foods feeds and beverages fell $44 million to $9,595 million in September and imports of other goods not included in an end use category fell $373 million to $5,957 million..

the major month over month changes in our exports of goods by end use category in September included a $1,442 million increase in exports of foods, feeds, and beverages to $11,597 million, almost all of which could be accounted for by a $1,118 million increase in our exports of soybeans; also a 1,264 million decrease in our exports of Industrial supplies and materials, which fell to $41,436 million, mostly due to the decreases of $671 million in exports of non-monetary gold and $592 million decrease in exports of fuel oil...September also saw a small $7 million decrease in exports of automotive vehicles, parts, and engines to $13,125 million and a $97 million decrease in our exports of non-automotive capital goods to $44,723 million, as a $211 million decrease in civilian aircraft exports and a $132 million decrease in exports of excavating machinery was largely offset by a $302 million increase in exports of industrial engines and a $166 million increase in semiconductor exports...there was also a $202 million decrease in exports of consumer goods to $15,417 million, as September exports of gem diamonds fell $507 million and jewelry exports fell $139 million, which was partially offset by a $487 million increase in exports of pharmaceuticals, and an additional decrease of $218 million in exports of other goods not included in an other end use category...

since the monthly data tends to be noisy, wherein what’s exported or imported increases one month might decrease the next, it might pay to look at trade over a longer time horizon to get a better picture of what’s going on…over the first nine months of 2013, our major exports have included $113,775 million in automotive vehicles, parts, and engines, up $3,838 million from our automotive exports of the similar period last year, $46,982 million in fuel oil, an increase of $2,854 over our fuel oil exports last year, $43,402 million worth of exports of other petroleum products, up $1,809 million from last year, $40,822 million in civilian aircraft exports, an increase of $7,550 million from last year, $35,940 in Industrial machines not otherwise listed, up $933 million over 2012's export pace, $31,733 million worth of semiconductors, an increase of $78 million over our semiconductor exports from last year, $36,443 million in pharmaceuticals, a $1,021 million increase over last year's level, $30,050 million in electric apparatuses, a $1,409 million increase over last year's export pace, $29,688 million of telecommunications equipment, an increase of $1,032 million over the the first nine months of 2012, and $28,055 million of exports of non-monetary gold, $643 million over last year's export pace..

our major imports by dollar value over the first three quarters of this year included automotive vehicles, parts, and engines at $229,518 million, which was $6,820 million more than we imported over the same months last year, crude oil at $205,307 million, down $34,214 million from the first three quarters of 2012, fuel oil at 34,482, up $969 million over last year's imports, other petroleum products, at $36,691 million, down $934 million from 2012, pharmaceuticals at $62,613 million, down $3,976 from our drug imports of the first nine months of last year, cell phones and related goods, at $66,953 million, a $7,907 million increase from 2012's import level, computers at $47,775 million, a $852 million decrease from last year, computer accessories at $41,603 million, down also by $1,027 million from last year's pace, telecommunications equipment at $41,152 million, an increase of $1,655 million from last years telecom imports, electric apparatuses at $34,032 million, $1,898 million higher than last year; cotton apparel and other goods at 36,297 million, a year over year increase of $837 million, and Industrial machines not otherwise listed at $35,015 million, a decrease of $1,591 million from the value of such machines we imported last year...

the other noteworthy element of this September trade report was how much of it was as a result of our trade imbalance with China; in data that is not seasonally adjusted, the commerce department reported that our bilateral trade deficit with China reached a record $30.5 billion in September, up from $29.9 billion in August and by itself accounting for 49% of the total goods deficit on a Census accounting basis...other large bilateral trade deficits for September were at $8.0 billion with the European Union, which fell from $9.8 billion in August, $6.1 billion with Germany, $5.9 billion with OPEC, $5.5 billion with Japan, $5.3 billion with Mexico #.2 billion with Canada, $3.2 billion with Saudi Arabia, $2.1 billion with Korea, $1.8 billion with Ireland $1.7 billion with India, and 1.3 billion with Venezuela...we managed small bilateral trade surpluses with Hong Kong at $3.2 billion, with Australia at $1.5 billion, with Singapore at $1.3 billion, and with Brazil at $1.0 billion...

the graph below, which comes from Bill McBride, tracks our total trade deficit in blue for each month since January 1998, and then breaks our trade deficit into an oil component in black and an “everything else” component in red…note the graphs are shown as a negative amount from the top "$0” bar, so the further down the graph, the greater the deficit is…clearly, roughly half our trade deficit has been in oil since the onset of the recession (the pale blue vertical bar), but as that has gradually improved, so has our overall deficit in blue; the price of crude oil averaged $102.00 a barrel in August, up from $100.26 in August, and up from $98.90 a year ago, so although we’ve generally been importing less oil, it’s been costing us more..

September Wholesale Inventories Raise 3rd Qtr GDP Estimates

the other release this week that may have an impact on revisions to GDP was on September Wholesale Trade Sales and Inventories (pdf), which showed that seasonally adjusted sales of merchant wholesalers were up 0.6% (+/-0.5%) from August at $430.5 billion, a level 3.9% (+/-3.2%) above a year earlier, and that total inventories of merchant wholesalers were at $506.3 billion at the end of September, up 0.4% (+/-0.4%)* from August's revised level and 2.2% (+/-4.7%)* above the inventories of September 2012; this isn't a widely watched report and considering the large margin of error it wouldn't be important except for the fact that this data was unknown to the BEA when they released the Advance Estimate of GDP last week...the technical note on 3rd quarter GDP indicates the BEA assumed that wholesale and retail inventories would decrease by $7.6 billion in September; so with the apparent actual increase of slightly more that $2.0 billion in September wholesale inventories.it appears their guess underestimated by a bit; however, note that the BEA's estimate includes retail inventories and we dont yet have the data for that; when August retail inventories were reported on Oct 29th, they were at a seasonally adjusted 508.4 billion, down 4.5% from July, quite a one month drop, so it's reasonable to expect that retail inventories, which are of the same magnitude of wholesale inventories, would have rebounded and also be up in September, making BEA assumptions well off the mark...but we dont know that yet, and we wont until retail inventories are released on November 20th...but that didn't stop economists from raising their estimate on revised 3rd quarter GDP; J.P. Morgan Chase and Barclays economists raised their estimates to 3.1%, and Macroeconomic Advisers is now forecasting a revision to a 3.3% growth rate...from here it looks like they're out on a limb with insufficient data...

delinquency rates on most loans. except for student debt and HELOCs, continued to improve in the 3rd quarter, with $831 billion, or 7.4% of total debt outstanding in some stage of delinquency as of September 30, down from a delinquency rate of 7.6% at the end of the third quarter; $600 billion of that was considered seriously delinquent, meaning the debt payments were more than 90 days late or "severely derogatory", which is the category of debt that includes new foreclosures, repossessions, and debts that have been turned over to 3rd parties for collection....the rate that current mortgages are transitioning into delinquency is at 1.6% of mortgage debt outstanding, which the NY fed considers a pre-crisis rate; however, 22.7% of those mortgages that were 30 to 90 days late on their housepayments transitioned to seriously delinquent (more than 90 days late) in the 3rd quarter, a slightly higher rate than in the second, and the cure rate, or those mortgages that were between 30 and 90 days delinquent that caught up on their payments, also also worsened somewhat, dropping to 25.7% for the 3rd quarter...so you see that this report is not only interesting in that the trend towards consumer deleveraging, or lowering of outstanding debts, reversed itself in the 3rd quarter, but that this report includes yet another take on the same kind of data on home mortgages that we looked at from the MBA National Delinquency Survey and the LPS Mortgage Monitor last week; ie, those that are delinquent, or behind on their payments, and those that are seriously delinquent or in foreclosure...the data used in this report is unique, in that it comes from the NY Fed's own consumer credit panel and the credit reporting agency Equifax, so we can expect differences in the same manner that the household survey differs from the establishment survey in the jobs report...for instance, the NY Fed says about 168,000 individuals had a new foreclosure notation added to their credit reports over the quarter; but LPS data from the lenders shows new foreclosure starts over 100,000 each month, with 108,953 foreclosure starts in September alone...

much like the LPS mortgage monitor, this 31 page pdf report from the NY Fed is almost entirely graphs; it only has one page of text covering the data and a glossary of terms used at the end of the report, so we'll take a look at a few of the graphs and discuss what they imply...the first bar graph below shows the components of total household debt for each quarter since the beginning of 2003, with each bar on the graph representing a quarter of a year, and showing a color coded representation of the amount in dollars of each type of debt that was outstanding in that given 3 month timeframe…in each bar, orange represents the amount of mortgage debt that was outstanding at the end of that quarter, violet is the home equity loans outstanding, green are auto loans, blue is credit card debt, red are student loans, and grey is ‘other’ debt outstanding in the quarter represented by any given bar…although mortgage debt is trending down, we should note that this report and its graphics does not distinguish between mortgage debt that has been paid off and mortgage debt that has been extinguished through a foreclosure or a short sale... we can also see here the jump in debt this recent quarter on the left, driven, as we mentioned by increases in all types of debt except revolving home equity loans...

what the next bar graph represents is a little less intuitive; again, each bar represents a quarter of a year starting from 2003; and within each bar, the percentage of debt outstanding that was paid up current at the end of the quarter is shown in green, and then, for the those loans that are late in being repaid, the percentage in each delinquency category by days or condition are coded by color, with each bar adding up to 100% of the debt outstanding in that quarter, irregardless of the amount; so the light green is the percentage debt that was 30 days late in that quarter, the blue is the percentage debt that was 60 days delinquent in that quarter, the yellow is the percentage debt that was 90 days late, the orange is the percentage debt that was 120 days late, and the red is the percentage of debt that was severely derogatory, including foreclosures, at the end of each quarter...

the next graph shows the percentage of each type of loan that was 90 days or more delinquent over the same time frame; we can see how seriously delinquent mortgage debt shown in yellow peaked in 2009, followed by even worse seriously delinquent rates for credit card debt in blue…and while the percentage of seriously late debt for those categories and auto loans in green has been trending down since 2010, the percentage of seriously delinquent student loans shown in red continues to rise, and is now at 11.8% of all student debt outstanding…

the next graph is another bar graph; each bar has a color coded representation of the amount of newly delinquent loans by type as they first became delinquent in each quarter, over the same time frame and with the same color coding as the first graph we looked at; we can see a pretty clear peak with over $400 billion of newly delinquent debt in the last quarter of 2008; we can also see that there’s a trend for student debt, or the red in each bar, to become larger as time goes on, and also clearly noticeable is the $200 billion jump in new delinquent debt in this most recent quarter…

the next graph is formatted just like the last, except it shows new seriously delinquent debt outstanding by type of borrowing; unsurprisingly, the newly serious debt, which are loans more than 90 days late, peaked in the 1st quarter of 2009, 3 months after the peak in new 30 day delinquencies…we can also see a small increase in this serious debt in the most recent bar as the amount of seriously delinquent student loans in red expanded…

the remaining graphics that follow are taken from after page 19 in the report, which is a breakdown of outstanding debt by state; each chart in this section graphically shows debt statistics for the ten largest states by population, plus Arizona and Nevada, apparently because those two were at the center of the mortgage crisis…the color coding for those 12 states is consistent throughout…

the first state graph below shows the historical track of the average amount of debt outstanding for each person with a credit report in each of these 12 states over the period from 2003 to the present…the real estate related peak is obvious, as is the fact that California, with its higher priced real estate, has the highest debt per capita…the barely readable footnote says that with this quarter, there was a change in credit reporting standards that increased the headcount and hence reduced the per capita debt outstanding for each state, and that, absent that revision, per capita debt would have increased…

the next bar graph shows the composition of the total debt by type in thousands of dollars for the average person with a credit report in each state, with a separate bar for each state wtih types of debt color coded as before.. while it’s not a surprise that the percentage composition for most states is close to the national averages, although we note a larger than average proportion of student debt in red in Michigan and New York, and not that other than mortgages, the largest proportion of debt outstanding for Texans is for auto loans, where they’ve got almost twice as much as several other states…

finally, the last state graph shows the percentages of mortgage debt that has been more than 90 days delinquent in each state over the course of the mortgage crisis; you see that both Nevada and Florida still show a seriously delinquency rate of greater than 12%, ie, that would mean that roughly one in eight homeowners in those two states are more than 90 days behind on their mortgage…this is greater than the seriously delinquent percentages we saw in the MBA delinquency survey and the LPS Mortgage Monitor last week, especially in the case of Nevada; the LPS state delinquency table shows mortgage delinquencies, which includes even 30 day payment shortfalls, at 7.3% for Nevada, with an additional 3.9% of Nevada mortgages in foreclosure…and while mortgage delinquencies in New York and New Jersey have been rising according to both reports as shown below, their total levels according to LPS are at 6.8% and 7.5% respectively…but as we see below, data from the New York Fed and Equifax indicate that more than 9% of homeowners in those two states are more than 90 days behind on their mortgages…

while the headlines about industrial production are all focused on those three industry groups (manufacturing, mining and utilities), the detailed activity gleaned from this release comes from the report on industrial production by market group; within final products and nonindustrial supplies, which accounts for 53.46% of industrial output and which saw a 0.1% increase in October, production of consumer goods fell 0.1% for the month as production of durable goods fell 0.2% and production of non-durables was flat...among durable goods, automotive products production fell 1.0% after rising 1.5% in September and 4.5% in August, while production of home electronics rose 0.5% and output of appliances, furniture and carpeting increased by 1.0%...among non durable goods, production of foods and tobacco rose 0.3%, output of clothing increased by 0.1%, production of chemical products fell 0.5%, production of paper products rose 0.1% and energy output was off 0.3%...year over year, production of consumer durables rose 8.8% on the strength of an 11.2% increase in automotive products production, while October production of consumer non-durables was 0.7% higher than a year earlier on the strength of an 8.3% increase in clothing production..

production of business equipment rose 0.2% in October after a 1.1% increase in September; of that, production of transit equipment fell 0.1% after a 2.3% increase in September, while output of information processing equipment rose 0.2% and output of industrial and other equipment rose 0.3%...on a year over year basis, production of business equipment was up 5.1%, with transit equipment output up 5.2%, information processing equipment output up 5.7%, and production of industrial and other equipment up 4.9%...in addition, production of defense and space equipment rose 0.5% for the month and 3.3% from October a year ago, output of construction supplies increased 0.3% for the month, and 6.6% year over year, while output of business supplies increased 0.2% in October and posted a 3.0% from a year earlier..

the production of of materials to be processed further in the industrial sector, which accounts for 46.54% of the industrial production index, saw output fall 0.4% in October, as production of non-energy materials rose 0.4% and energy inputs fell 1.5%...production of inputs into durable goods rose 0.3% as production of parts for consumer goods fell 1.1%, equipment parts rose 0.6%, and output of other parts was also up 0.6% for the month; production of inputs into nondurable goods rose 0.4% as output of paper materials rose 1.0%, output of textile materials rose 0.7% and output of chemicals for use in non-durables was up 0.5%...on a year over year basis, production of of materials to be processed further rose 3.1%, as production of non-energy materials rose 2.1% with durable inputs increasing 4.2% and non-durable inputs up 1.0% while output of energy materials rose 3.5%..

capacity utilization for total industry, which is expressed as the percentage of our plant and equipment that was in use during the month, fell 0.2% from 78.3% in September to 78.1% in October; capacity utilization in October 2012 was at 77.0%...76.2% of our manufacturing capacity was in use during the month, an increase of 0.1% over September and up from 74.9% a year earlier; manufacturers of durable goods were operating at 76.6% of capacity, unchanged from September, with manufactures of furniture seeing the largest increase in utilization as their operating rate rose from 74.8% to 76.0%, while the operating rate for motor vehicle production fell from 77.0% to 75.9%...meanwhile, the operating rate for manufacturers of non-durable goods rose from 76.9% in September to 77.1% in October with printers seeing the largest increase, from 67.1% to 68.5%...in addition, the operating rate for mining equipment slipped from 90.5% in September to 88.7% in October, and capacity utilization for utilities fell from 79.2% to 78.3% as a return to more normal weather reduced seasonally adjusted output...

our FRED graph below shows the track of the industrial production index in black, the manufacturing production index in blue, the utility production index in green, and the mining production index in red from the beginning of 2005; recall that all these indexes were benchmarked to 2007 = 100.0, so that the overall index in black at 100.0 is at exactly the same level it was at six years ago…as of October, the manufacturing index lagged at 96.0, the utilities index was at 101.5, and the mining index had risen to 120.6, mostly to the explosion of gas and oil rigs over most of the country…also shown below in pink is the track of capacity utilization for total industry since 2005; note that it’s a percentage, rather than an index number like the other metrics tracked on the same graph...

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

Establishments Report Substantial October Job Creation

the unadjusted CES non-farm payroll data indicated payroll employment of 137,540,000 in October, up 940,000 from September's unadjusted 136,600,000 payroll jobs...after running through a program to adjust for normal seasonal employment differences, BLS generated seasonally adjusted totals of 136,350,000 payroll jobs in September and 136,554,000 jobs in October, resulting in the headline net job increase of 204,000...in addition, the seasonally adjusted payroll increase for September was revised to show job creation of 163,000, rather than the 148,000 reported two weeks ago, and also revised the adjusted August payroll job gains upward from 193,000 to 238,000, netting an additional 60,000 jobs in the revisions, all shown by our adjacent FRED bar graph...thus, over the past three months, the seasonally adjusted payroll jobs gain was 605,000, while the actual unadjusted increase in non-farm payrolls totaled 1,963,000 over the same period...

most of the job creation in October was again in the same low paying sectors that have accounted for the lion's share of the new jobs during the recovery...of the 204,000 seasonally adjusted jobs added in October, which was nearly twice the number expected, 53,000 were in leisure and hospitality, of which 29,300 were in food service, and 44,400 were in retail sales, with 11,500 of those working in food and beverage stores..another 44,000 jobs were generated in the broad professional and business services category, with 21,400 of those in professional and technical services and 15,400 in administrative and waste services...19,000 jobs were added in manufacturing, an area which has been weak over the past year despite logging decent job gains in 2011, and another 11,000 jobs were added in construction, split fairly evenly between residential construction and nonresidential specialty trade contractors; in addition, 17,500 more were also employed in health care and social assistance, with 11,000 of those in ambulatory care services...in other sectors, there was little or no job creation in resource extraction, wholesale trade, transportation and warehousing, information technology or financial industries, and the government sector showed a decrease of 8,000 jobs, as Federal agencies shed 12,000 while states added 7,000 and local governments cut 3,000...

our FRED bar graph below shows the monthly change in payroll employment in selected sectors over the past year and a half; jobs added are above the 0 line, with job cuts below it....in each monthly grouping of 8 bars, the monthly change in manufacturing employment for that month is indicated in blue, the change in monthly construction employment is in red, the monthly change in retail employment is in dark green, the monthly change in government jobs is in yellow, and the change in employment in professional and business services, which includes everything from systems design to garbage collection, is in grey; also included are the BLS employment subcategories of jobs in bars and restaurants in light green, and new health care jobs in orange, and non government jobs in education shown in violet...we can see strong job creation in retail (dark green), food service (light green) and health care (orange) with uneven job creation in manufacturing (blue) and construction (red), and more jobs cut than added in the government sector (yellow)

data extracted from the CES also showed that the average workweek for all payroll employees in October was at 34.4 hours, unchanged from September; with the average workweek as high as 44.0 hours in mining and logging to a low average of 25.9 hours for those working at leisure and hospitality jobs...the manufacturing workweek was 40.9 hours and factory overtime was at 3.4 hours, both unchanged from September...the average workweek for nonsupervisory employees slipped a bit from 33.7 hours in September to 33.6 hours in October; again, those production workers in resource extraction logged the most average hours at 45.4, while grunt workers in leisure and hospitality averaged just 24.9 hours of work a week...average hourly pay for all workers was up 2 cents to $24.10 and ranged from a high of $35.08 an hour for the average utility worker to a low of $13.50 for the average worker in leisure and hospitality; meanwhile, average pay for nonsupervisory workers was also up by just 2 cents to $20.26; again, utility linemen garnered the highest average at $32.39 an hour, while the average non-supervisory worker in leisure and hospitality jobs made just 11.85 an hour...

Nearly a Million Drop Out of Labor Force; Participation Rate at 35 Year Low

Divergence Between BLS Employment Reports Widens

finally, we want to look at the raw unadjusted numbers from this survey and compare the seasonal adjustment thereon to the seasonal adjustment made on non-farm payrolls in the establishment survey...before adjustment, the extrapolated number who reported they were employed in October was 144,144,000, down 507,000 from the 144,651,000 who reported they were employed in September; thus the seasonal adjustment subtracted 228,000 from the change in the employed to arrive at a seasonally adjusted 735,000 decrease in those employed...as we documented last month, the seasonal adjustment in August household survey added 489,000 to the count of the employed, while the September household survey added 9,000, which, when combined with the August adjustment, was a difference of 1,162,000 in the adjustments between the the two survey (ie, the CES seasonal adjustment subtracted 682,000 payroll jobs, while the CPS seasonal adjustment added 480,000 to the count of employed)...with October's data, we now see a seasonal subtraction of 1,358,000 jobs from the establishment survey over 3 months, but still a seasonal addition of 268,000 to the household survey over the same three months...the point of this exercise is to illustrate how different the two unemployment reports we and others have been covering as one are; so different, in fact, that they shouldn't even be released together...our FRED graph below shows the unadjusted count of those employed from the household survey in blue and the unadjusted count of payroll jobs from the establishment survey in red since 2000….the scale for the household employed count in thousands is on the right sidebar, and the scale for the establishment job count is on the left sidebar, allowing the surveys, which actually count a different population, to overlap; it’s fairly clear in just looking at this graph that there are times when the lines match, while there are also times when each survey runs as many as 2 million jobs ahead of the other….you can even see the action we’ve described over the last three months, whereinthe unadjusted payroll job count went up by 1,963,000, while the true count of the employed went down by 967,000, only to have them brought into approximate alignment by the seasonal adjustments..

Incomplete Advance GDP Data Better than Expected

the advance estimate of 3rd quarter Gross Domestic Product was surprisingly better than most forecasts, indicating that our seasonally adjusted output of goods and services grew at an annual rate of 2.8% over the three months through September vs. the previous three months...however, the internals were not as solid as the headline, as .83% of the 2.8% 3rd quarter growth increase came from increasing inventories, or gross production that's still sitting on the shelf; take that out, and the real final sales of our domestic product just increased 2.0% in the third quarter, down from the real sales increase of 2.1% in the second...on the plus side, every major component of the economy - consumers, investment, net exports, and government - contributed to growth in the quarter for the first time in a year....in current dollars, the value of all our national output of goods and services -- increased 4.8% or $196.6 billion, in the third quarter to an annualized level of $16,857.6 billion...in the inflation adjusted chained 2009 dollars, upon which the change in real GDP is calculated, third quarter GDP increased by $110.4 billion, from an annualized $15,679.7 billion in the second quarter to an annualized $15,790.1 at the end of the third...generally, the dollars amounts we'll be looking at will be current dollars, while the percentage changes BEA gives us are adjusted for inflation based on chained 2009 dollars...

before we start with the specifics, we should also make it clear that all national accounts data is reported at a seasonally adjusted annual rate; thus, when it's said a component of GDP grew at a 2.8% rate, it's understood that it means that if the growth rate in the quarter were extrapolated over the entire year based on the rate the seasonally normalized 3rd quarter economy grew at, we'd see 2.8% growth over an entire year; that means that actual growth in the quarter was something close to a seasonally adjusted 0.7%...another important point the media and most analysts missed in their coverage of this report was the technical note accompanying this report (pdf), which notes that because of delayed reporting by government agencies, the source data was incomplete and subject to revision; namely that 3 months of source data were only available for consumer spending on goods; shipments of capital equipment; motor vehicle sales and inventories; durable and nondurable manufacturing inventories; federal government outlays; and consumer, producer, and international prices, while only two months of data were available for most other key data sources; the BEA’s "assumptions" for the third month are shown in a table included with the technical note (pdf); since the average change from the first to the second estimate of GDP is plus or minus 0.5% even under the best conditions, it's a fair to say that this report is only a bit better than a wild guess at 3rd quarter GDP...

personal consumption expenditures, which accounts for approximately 70% of nominal GDP, grew at a 1.5% annual rate over the quarter, from $11,427.1 billion in the second quarter to $11,525.4 billion in the 3rd, which was the slowest growth in consumer spending since the 2nd quarter of 2011, and contributed just 1.04% to the 2.84% increase in GDP...our real, inflation adjusted spending for durable goods grew at a 7.8% rate and contributed 0.57% to the GDP change, our spending for nondurables rose 2.7% and added 0.42% to the growth rate, while our outlays for services grew at a 0.1% rate and contributed 0.05% to GDP..that was the slowest quarterly growth rate in services outlays of the recession.was precipitated by an inflation adjusted $11.2 billion decrease in outlays for housing and utilities coupled with much smaller increases in every other services spending subcategory...

gross private investment, which includes the aforementioned inventories, grew at a 9.5% annual rate to $2,689.8 billion and contributed 1.45% to the quarter's growth rate; without inventories, fixed investment increased at an annual rate of 4.1% and contributed just 0.63% as residential investment grew at a 14.6% clip and added 0.43 while non-residential fixed investment increased at a 1.6% rate and added 0.20%...within non-residential fixed investment, investment in structures grew at a 12.3% annual rate and contributed 0.32% to GDP, investment in equipment fell at a 3.7% annual rate and subtracted 0.21% from the final GDP growth figure, and investment in intellectual property grew 2.2% and contributed 0.09% to the quarter's growth rate...meanwhile, the nominal $110.3 billion increase in inventories was adjusted to an $86.0 billion quarterly change which added 0.83% to the 3rd quarter GDP; of that, $59.2 billion was an increase in business inventories, which added 0.71%, and $22.5 billion was the increase in farm inventories, which added 0.11%...

the next component of GDP, net exports, which are our exports minus our imports, have subtracted from GDP annually since 1976; however, what we're looking at here is the change from the 2nd quarter to the 3rd quarter, and in that regard they've added, since exports increased more than imports over the 3 month period...real exports of goods and services increased 4.5% in the 3rd quarter and added 0.60% to GDP, while real imports increased 1.9%, and subtracted 0.30% from the final growth rate...

lastly, real net government consumption and investment increased $1.5 billion to $2,906.0 billion in chained 2009 dollars and added 0.04% to to the quarterly growth change; federal government expenditures and investment decreased 1.7%, as defense spending fell 0.6% from quarter to quarter while non-defense spending fell 3.3% over the period; on net, federal contraction subtracted .13% from the quarter's growth rate...picking up the slack and boosting the government contribution into the black were state and local governments, who saw consumption expenditures and gross investment increase at a 1.5% rate over the quarter, which added .17 to 3rd quarter growth...contributions from each of these components vis a vis the 2nd quarter contributions can be seen in the simple insert to the right above, which comes from ed dolan at economonitor; it shows the contributions to growth from each of the four major sectors of the economy; consumers, private investment, government and exports; note that they add up to a 2.84% growth rate, which is rounded to 2.8% because of the inexactness of these estimates...similarly, in the bar chart belowfrom doug short, the contributions from each of those components for each quarter since the beginning of 2007 are color coded, with those that added to GDP above the '0' line, and those that subtracted for that quarter below it, with personal consumption spending in blue, investment in red, net exports (change in exports minus imports) in chartreuse, and government in violet...then the dashed blue line is the GDP reading for the quarter, which is the sum of those components...it's clear that our recovery has been driven by consumers and investment, and that except for the stimulus, government cutbacks have been a drag..

... a couple of private reports we also want to look at this week are the Mortgage Monitor for September (pdf) from LPS (Lender Processing Services) and the 3rd Quarter National Delinquency Survey from the MBA (Mortgage Bankers Association); both of these reports cover essentially the same data on home mortgages: those that are delinquent, or behind on their payments, and those that are in the process of being foreclosed; the LPS mortgage monitor is a monthly report that we've covered monthly for several years, while the MBA National Delinquency Survey is only released quarterly and is seasonally adjusted based on patterns of mortgage delinquency that have repeatedly appeared annually...since both of these reports are of mortgage conditions as of the last day of September, comparing them side by side should give us a better insight into the ongoing mortgage crisis than looking at one or the other in isolation...

according to the MBA, the seasonally adjusted national delinquency rate, which is the percentage of homeowners who were late at least one house payment late but not in foreclosure, fell to 6.41% of all mortgage loans outstanding at the end of the 3rd quarter, down from 6.96% at the end of the second quarter, and down from a delinquency rate of 7.40% at the end of the 3rd quarter a year ago, and the lowest level since lowest level since the second quarter of 2008...in addition, they report that the percentage of mortgage loans in the foreclosure process at the end of the third quarter was 3.08%, down from 3.33% at the end of the 2nd quarter and from 4.09% at the end of the 3rd quarter last year, and also the lowest percentage foreclosure inventory since 2008...new foreclosure actions were initiated on 0.61% of mortgages in the 3rd quarter, down from the 0.64% rate of new foreclosures in the 2nd quarter...the serious delinquency rate, which combines the percentage of mortgages in foreclosure with those that are more than 90 days behind on their housepayments but still not in foreclosure, fell to 5.65% in the 3rd quarter from 5.85% in the 2nd quarter and well below the serious delinquency rate of 7.03% a year earlier, although they warn that their reported improvement in that seriously delinquent percentage may be slightly less than reported because one large specialty servicer that has received a number of loan transfers does not participate in the MBA survey...combining those at least one payment overdue on their mortgage with those seriously delinquent or in foreclosure gives us a total percentage of 9.75% of homeowners who were behind on their mortgage at the end of the quarter, the first time overall delinquencies had been below 10% nationally in the MBA survey since mid 2008...this can be see in the bar graph belowfrom Bill McBride at Calculated Risk, which stacks the percentage of foreclosures in red on the top of each quarterly bar, which each also shows the number of 30 day delinquencies reported by the MBA each quarter in violet, the number of 60 day delinquent mortgages each quarter in the blue portion of each bar, and the number of mortgages more than 90 days late in yellow...we can see on that graph that the percentage of mortgages in trouble peaked at 14.7% in the first quarter of 2010 and has been trending downward since, although it's still well above the levels of the pre-crisis year of 2005, especially with regards to 90 day delinquencies and homes stuck in foreclosure...

the next graph below is from the MBA and it compares the historical track of the foreclosure inventory in judicial states in solid blue, where where the mortgage servicer must prove their right to foreclose on a homeowner in court, and the foreclosure inventory in non-judicial states, where the bank can seize a delinquent home by an auction initiated by their attorney without court intervention, shown in blue dots…the quarterly difference between the two in shown by the dotted red line..as of the 3rd quarter, MBA has the foreclosure inventory in judicial states at 5.28% of all mortgages in those states, while the foreclosure inventory in non-judicial states is at just 1.66% of mortgages in those states…

the next bar graph below, also from the MBA, shows the percentage of all mortgages in foreclosure by state, with the judicial states coded in navy blue, and non-judicial states coded in red…obviously, the states with the highest percentages of homes remaining in foreclosure according to the MBA are all judicial, led by Florida, which has 9.48% of their mortgages in foreclosure, which is nonetheless down from 10.58% in 2nd quarter; New Jersey, with the 2nd most at 8.28% in foreclosure up from 8.01% last report, as is New York, where the foreclosure inventory rose from 6.09% in the second quarter to 6.34% in the 3rd…Nevada is the only non-judicial state among the top dozen states with the highest foreclosure inventories, because they passed a law in 2011 making it a felony if a mortgage servicer made fraudulent representations concerning a title, and imposed fines up to $5,000 for falsifying documents, which slowed foreclosures in that state to a near standstill....

LPS: Mortgage Delinquencies Rise 4.2% in September but Still Down 10% YTD

in contrast with the MBA delinquency report, the Mortgage Monitor for September (pdf) from LPS shows that delinquencies have increased since their last report, with the percentage at least one payment overdue on their mortgage but not in foreclosure at 6.46% in September, up from 6.20% in August...but the LPS delinquency rate is still down from the 6.68% delinquent in June, the month comparable to the MBA 2nd quarter report; their foreclosure inventory is down too, to 2.63% from 2.66% in August and 2.93% in June...but they show foreclosure starts in September at 108,953, 1.3% above August's 107,552 new foreclosures, and at nearly the same level as the 109.042 foreclosures initiated in June...but recall that this LPS data is not seasonally adjusted, while the MBA stats we quoted were, which could account for the difference..

the graph below, copied from page 13 of the mortgage monitor (pdf), tracks with a green line the percentage of active loans that were in the foreclosure process monthly from 1995 to the present...this so-called foreclosure inventory are those home loans in between the first initiation of foreclosure proceedings and the "foreclosure sale", which typically transfers title to the bank (terminology is on page 28 of the pdf)….by September, that percentage had fallen to 2.63% of home mortgages outstanding,well down from the October 2011 peak of 4.29% of mortgages in foreclosure, but still more than five times the 0.44% foreclosure inventory of pre-crisis December 2005...the red line on this graph tracks the percentage of mortgages delinquent but not in foreclosure over this same timeframe; it was at 6.46% in September, well down from the 10.57% all time high for such mortgage delinquencies set in January 2010, but still higher than the precrisis level of 4.27% in December 2005 marked on the graph...also note the seasonal changes in mortgage delinquencies, wherein they usually peak at year end, when most people get overextended during the holidays, and then decline over the first few months of each year as homeowners catch up...the delinquency rate of 6.08% reached in May was the low for this year; it’s likely to trend up from here as consumers put holiday shopping ahead of their house payments…

next, we'll include below the table of non-current mortgage and foreclosure percentages for all 50 states and the District of Columbia from page 24 of the mortgage monitor...the first column shows the delinquency rate for each state, ie, the percentage of mortgages in each state that are at least one month behind and not yet in foreclosure...the second column is the percentage in each state that are in foreclosure, which you'll note are different percentages than those shown in the MBA bar graph, the third column is the total non-current percentage, or sum of all those behind of their mortgage, and the last column shows the year over year percentage change in non current mortgages nationally and in each state...also note that judicial states, where banks must establish their right to foreclose in court, are marked on the table below by a red asterisk...these states have the highest percentages of mortgages still stranded in foreclosure, led by Florida, where LPS shows 8.1% of all mortgaged homes still in foreclosure, in contrast to the 9.5% in foreclosure in Florida that the MBA showed ..there are similar differences in several other states as well...

finally, we'll include two graphics that are new to the mortgage monitor with this month's release; the first map graphic below, from page 17 of the pdf, color codes the foreclosure inventory by county with those counties with 0.0% homes in foreclosure in the darkest shade of green and those with more than 3.5% of their mortgaged homes in foreclosure in the darkest red; obviously, the judicial states have the reddest hue, with every county in both Maine and Florida showing a foreclosure inventory of greater than 3.5%, as well as nearly every county in New York and New Jersey in that darkest red...this should not be a surprise, since both LPS and the MBA have the statewide foreclosure inventory at over 5% in all four of those states...the next national map below that, from page 16 of the mortgage monitor, is similar in that it shows the percentage of mortgages that are at least one payment behind in each county, again with the few and far between deepest green indicating zero percent of the mortgage are non-current, and the darkest red indicating more than 15% of the home mortgages in that county are at least one payment in arrears...again, this should not be a surprise, with total national delinquency rates still above 9%...you may have noticed when viewing the state table that both Florida and Mississippi have statewide non-current rates greater than 15%...

percentage of non-current mortgages by county:

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....